THE POUND AND THE DOLLAR.

New Zealand Herald, Volume LXIV, Issue 19808, 1 December 1927, Page 10

THE POUND AND THE DOLLAR.

The appreciation of the pound sterling in terms of the American dollar, which has continued, with minor fluctuations, for about three months, has been so unexpected that explanations have been sought far beyond orthodox limits. Judging from the experience of pre-war years, autumn imports of wheat and cotton should have caused a definite pressure on the exchange market; its absence has been attributed to the financing of shipments from New York instead of London. Other in- * * fluences which have been qiioted have been the movement of funds from the United States to Britain to secure the advantage of higher money rates; the volume of American foreign investments, including the transfer of dollar loans to London ; and there have not been wanting suggestions of deliberate manipulation as the result of the recent bankers' conference in New York. The authors of these various conjectures have generally admitted that they were not sufficient justification for the paradox, and, indeed, were unsatisfactory, since they led to the conclusion that the value of sterling was ax-tificial and could not be sustained, because the factors mentioned were not sufficiently powerful or novel to be responsible for the movement. A writer in the Statist has therefore dismissed the "balance of payments" theory as inadequate, and resorted to the modern conception of the relative purchasing power of the currencies concerned —a doctrine actually comprehends the whole catalogue of factors influencing foreign exchanges, since those factors also impress themselves on domestic currency values. Attention is directed to "the inception of a moderate degree of credit inflation" in America, as reflected in a decided upward movement of prices from the end of June to the end of September, while prices in Britain have moved to lower levels. This interpretation is supported by the fact that since it was presented there was a reaction in American prices, accompanied by a temporary weakening of the sterling exchange, while the subsequent movement suggests that the fall in the purchasing power of the dollar has been resumed Further evidence in its favour appears in the fact that it is not only the .sterling exchange that has appreciated. The latest reports from New York describe a general depreciation of the dollar in terms of all important foreign currencies, not only European, for the Canadian dollar was at a premium, Argentine and Brazilian exchanges advancing, and Japanese, Chinese and Indian currencies also moving against the dollar. Unless the underlying influences are indeed temporary, the foreign exchange market may prove to have been the first reflection of an important change in economic conditions in the United States.